Thursday Watch

Evening Headlines 
Bloomberg: 

• Global Deflation Bug Sends CPI Swap to ‘09 Low: Australia Credit. Australian expectations for inflation have slumped to a five-year low as a global trend of falling prices infects the world’s highest-yielding AAA debt market. The three-year inflation swap fell to 1.99 percent yesterday, the lowest level since July 2009. The contracts allow investors to swap a fixed rate for the change in Australia’s consumer-price index. The country’s inflation rate was last below 2 percent in the second quarter of 2012.

• Oil Export Plunge Signals Canada Economy Running on Empty. Plummeting oil prices are taking a toll on Canada’s energy exports and threatening to leave little in the economy’s tank for 2015. Shipments of crude oil and bitumen dropped 9.9 percent to C$6.9 billion ($5.8 billion) in November, the biggest decline in almost three years, the federal statistics agency said Wednesday from Ottawa. The trade report is among early signs this may be a tough year for an economy that’s suffered least among developed nations from the 2008 financial crisis, as energy-export woes add to concerns the nation’s housing market is in jeopardy.

• Youngest Suspect in Paris Magazine Shooting Surrenders, AFP Says. The youngest suspect in the deadly attack on French satirical magazine Charlie Hebdo has surrendered, Agence-France Presse said, as the police named two other assailants being sought. French police released pictures of the two brothers, identifying them as Said and Cherif Kouachi, aged 34 and 32 respectively. The younger accomplice was Hamyd Mourad, 18, Le Point magazine said.

• China Stocks Fall Most in Two Weeks as Strategists See Losses. China’s stocks fell the most in two weeks amid concern recent rallies were excessive as strategists from Bank of America Corp. and HSBC Holdings Plc forecast declines this year for the benchmark index from current levels. Financial companies, the second-best performer over the past year, slid the most among industry groups after HSBC downgraded the industry. Citic Securities Co. (600030), China Construction Bank Corp. and China Life Insurance Co. all dropped more than 3 percent. Huaneng PowerInternational Inc. retreated 3.6 percent after jumping 40 percent over the past two months. Data tomorrow will likely show declines in producer prices accelerated last month.

• Asian Stocks Rise; U.S. Futures, Ringgit Advance With Oil. Asian stocks climbed from a three-week low as Samsung Electronics Co. beat earnings estimates and Japanese exporters rallied on a weaker yen. U.S. equity-index futures signaled a second day of gains as crude oil rose, boosting Malaysia’s ringgit. The MSCI Asia Pacific Index rose 1.1 percent by 12:30 p.m. in Tokyo, climbing for the first time in four days as Samsung, the world’s biggest smartphone maker, added 0.5 percent. Toyota Motor Corp. led Japan’s Topix index to a 1.5 percent gain as the yen slipped a second day.

• Derivatives Show Traders Are Undeterred on Rates by FOMC Minutes. Derivatives show minutes from the Federal Reserve’s last meeting did little to alter traders’ expectations that policy makers will begin raising interest rates this year. That's where the similarities on the outlook for rates between the bond market and the central bank ends. Federal funds futures show a 59 percent chance of the Fed raising its near-zero policy rate in September, little changed from before the release of the Dec. 16-17 meeting minutes. For the years ahead, traders see the Fed increasing rates to only about half the 3.75 percent peak level policy makers predict.

Wall Street Journal: 

• Thousands Join Rally in Paris Condemning Attack at Charlie Hebdo. Gathering at Place de la République Echoes President’s Call for Unity.

• Small Businesses Snub Health Exchanges for Coverage. Owners, Brokers Blame Limited Federal Tax Credits and Small Menu of Offerings. Some small-business owners are snubbing the new health-insurance exchanges, operating under the Small Business Health Options Program, citing limited federal tax credits and a small menu of insurance offerings in a few states, companies and health-insurance brokers said.

CNBC: 

• Are bond yields flashing a panic signal?

Zero Hedge:

• 10 Key Events That Preceded The Last Financial Crisis Are Happening Again.

• Obama's Fed Board Appointee Was Previously Busted, And Quit, For "Impropriety".

• The Hidden Message In High-Yield Credit Markets - Most Fearful Since Summer 2012. (graph)

• "The ECB Has Lost Control" - Spiegel Asks If "Helicopter Money" Comes Next?

• Did The World's Biggest Hedge Fund Just Go "All In" On HFT And Dark Pools?

• A Tale Of Two Record Unemployments: Italy vs Germany. (graph)

Business Insider:

• Samsung Profits Off 37 Percent.

• A Strong Dollar Hurts Some Commodities More Than Others.

• A Chinese Company Is Already Making Fake Apple Watches And Proudly Displaying Them In Las Vegas.

• Twitter(TWTR) CEO Dick Costolo Has Sold $25 Million Worth Of Stock Since November.

• People Are Rallying In Support Of Charlie Hebdo Across Europe.

Financial Times: 

• Save Ukraine to counter Russia, says Soros. Billionaire investor George Soros has accused western leaders of dangerously miscalculating their strategy towards Russia and Ukraine, arguing that the crisis there posed a lethal risk to the eurozone.

• ECB QE will not make Europe a good investment.

Telegraph:

• An extremist backlash in France could eventually bust Europe’s economies. A National Front victory in France would signal the final demise of the EU and euro.

China Times:

• China Won't Release Govt Loan Data for the Moment. China won't publicize outstanding local govt debt data for the moment. Release of the data may affect financing ability of local govts and trigger too much media reporting, an unidentified local finance dept official said.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -.25% to +1.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 115.0 -8.5 basis points.

• Asia Pacific Sovereign CDS Index 72.25 -2.0 basis points.

• S&P 500 futures +.68%.

• NASDAQ 100 futures  +.77%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (GPN)/1.20

• (FDO)/.62

• (STZ)/1.14

• (APOL)/.42

• (BBBY)/1.19

• (TCS)/.07

• (RT)/-.14

• (PSMT)/.73

• (SCHN)/.11

Economic Releases
8:30 am EST

• Initial Jobless Claims are estimated to fall to 290K versus 298K the prior week.

• Continuing Claims are estimated to rise to 2360K versus 2353K prior. 

3:00 pm EST

• Consumer Credit for November is estimated to rise to $15.0B versus $13.226B in October.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Rosengren speaking, Fed's Kocherlakota speaking, China CPI report, BoE Rate Decision, Challenger Job Cuts report for December, weekly EIA natural gas inventory report, weekly Bloomberg Consumer Comfort Index, (BKS) holiday sales report, (SIG) holiday sales call, (VRX) guidance call and the (ROVI) analyst briefing could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by technology and industrial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.

Stocks Surging into Afternoon on US Economic Data, Oil Bounce, Yen Weakness, Homebuilding/Biotech Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Slightly Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 20.36 -3.65%

• Euro/Yen Carry Return Index 147.48 +.32%

• Emerging Markets Currency Volatility(VXY) 10.65 -.84%

• S&P 500 Implied Correlation 66.65 -.95%

• ISE Sentiment Index 95.0 -4.04%

• Total Put/Call 1.08 -3.57%

• NYSE Arms .85 -27.74% 

Credit Investor Angst:

• North American Investment Grade CDS Index 70.65 -1.31%
• America Energy Sector High-Yield CDS Index 718.0 +2.65%

• European Financial Sector CDS Index 71.55 +.06%

• Western Europe Sovereign Debt CDS Index 29.85 +2.12%
• Asia Pacific Sovereign Debt CDS Index 72.48 -2.53%

• Emerging Market CDS Index 378.66 -1.82%

• China Blended Corporate Spread Index 369.68 +2.96%
• 2-Year Swap Spread 22.50 -.5 basis point

• TED Spread 23.25 -.25 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -14.5 +.25 basis point

Economic Gauges:

• 3-Month T-Bill Yield .03% +1.0 basis point

• Yield Curve 136.0 +4.0 basis points

• China Import Iron Ore Spot $70.96/Metric Tonne -.74%

• Citi US Economic Surprise Index 29.30 +6.5 points
• Citi Eurozone Economic Surprise Index 10.60 -.3 point

• Citi Emerging Markets Economic Surprise Index -12.80 +1.1 points

• 10-Year TIPS Spread 1.57 -1.0 basis point

Overseas Futures:

• Nikkei Futures: Indicating +285 open in Japan

• DAX Futures: Indicating +5 open in Germany

Portfolio: 

• Slightly Higher: On gains in my tech/biotech/retail/medical sector longs

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my (EEM) short

• Market Exposure: Moved to 50% Net Long

Bull Radar

Style Outperformer:

• Large-Cap Growth +.58%

Sector Outperformers:

• 1) Homebuilders +3.16% 2) Biotech +2.50% 3) Gaming +2.12%
  

Stocks Rising on Unusual Volume:

• SONC, ALKS, GEVA, OVTI, HALO, CPB, GBX, RMTI, LOCK, LEN, ISIS and LOCO

Stocks With Unusual Call Option Activity:

• 1) SC 2) ARNA 3) INFN 4) SLXP 5) MTG
  

Stocks With Most Positive News Mentions:

• 1) LMT 2) SONC 3) MDT 4) FSLR 5) MU
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Wednesday Watch

Evening Headlines 
Bloomberg:

• Euro-Area Prices Seen Falling as Risk of Deflation Spiral Mounts. Consumer prices in the euro area probably fell for the first time in more than five years last month, pushing the European Central Bank closer to adding stimulus as it battles to revive inflation. Prices dropped an annual 0.1 percent in December, according to the median forecast of economists in a Bloomberg survey. That would be the first decline since October 2009. 

• Shorts in Tokyo Soars to Record on Abenomics Skepticism. Bearish bets on Japanese stocks surged to a record because foreign investors are increasingly skeptical that Prime Minister Shinzo Abe will succeed in reviving the world’s third-biggest economy, said Reorient Group Ltd. Short-selling of shares on the Tokyo Stock Exchange accounted for 37.8 percent of trading value yesterday, the highest ratio since the bourse began keeping daily records in 2008. The Topix index sank 2.9 percent yesterday. Investors pulled $245 million out of the biggest U.S.-listed exchange-traded fund that tracks Japanese shares on Jan. 5, the second-largest daily outflow since May 2013, data compiled by Bloomberg show.

• There's a Leadership Crisis in Chinese Property Firms -- They're Defaulting. Who's Next to Go? The loan default by Kaisa Group Holdings Ltd., after the second surprise exit of a Chinese property tycoon in six months, is prompting investors to ask who’s next. The 2019 notes from the builder, based in the southern city of Shenzhen, have tumbled 38.4 cents on the dollar to a record low of 25.3 cents, after the resignation of the developer’s chairman triggered a loan default Dec. 31. The perpetual securities of Agile Property Holdings Ltd. dropped 17 cents to 67 since its billionaire chairman was placed under control of prosecutors in September before being released last month without details of the detention. China’s junk dollar notes have lost 3.9 percent in 2015, the worst start to a year ever in Bank of America Merrill Lynch indexes, after Kaisa Chairman Kwok Ying Shing resigned days after two other executives left their positions. Developers that rely on personal relations in securing land from the government are among the most at risk from President Xi Jinping’s local-government financing shakeup and anti-graft drive.

• Asian Stocks Extend Drop, Led by Energy Companies on Oil Plunge. Asian stocks fell, after yesterday sinking the most in nine months, as U.S. equities extended declines and the slump in crude oil deepened. The MSCI Asia Pacific Index (MXAP) declined 0.3 percent to 134.57 as of 9:03 a.m. in Tokyo, with energy companies dropping the most. The Asian gauge slumped 1.7 percent yesterday and the Standard & Poor’s 500 Index fell for a fifth day, extending the longest losing streak in 13 months. West Texas Intermediate oil sank below $48 a barrel in New York amid speculation data on U.S. supplies today will fuel concern over a global glut. “With the U.S. markets again under pressure, the lead for Asia looks bleak,” Evan Lucas, a markets strategist in Melbourne at IG Ltd., wrote in an e-mail to clients today. “Until oil finds bottoms, the markets will remain in a downward trajectory.” Japan’s Topix index dropped 0.5 percent. Short-selling on the Tokyo Stock Exchange reached 37.8 percent of total trading value yesterday, the highest since at least October 2008, when bourse data became available.

• Copper, Aluminum Hold Losses as Oil’s Slump Fuels Growth Concern. Copper held near a four-year low while aluminum languished near the weakest in seven months on fears oil’s slump signals a slowdown in economic growth and weaker commodities demand. Oil in New York traded near $48 a barrel and the euro area is poised to post its first drop in consumer prices since 2009, fueling pessimism over the global economy.

• Obama Picks Ex-Bank of Hawaii CEO Landon to Be Fed Governor. President Barack Obama plans to nominate Allan Landon, the former chief executive officer of Bank of Hawaii Corp. (BOH), to be a Federal Reserve governor after months of pressure to select a policy maker with community banking experience.

Wall Street Journal:

• Deep Debt Keeps Oil Firms Pumping. Producers Have Increased Their Borrowings by 55% Since 2010. American oil and gas companies have gone heavily into debt during the energy boom, increasing their borrowings by 55% since 2010, to almost $200 billion. Their need to service that debt helps explain why U.S. producers plan to continue pumping oil even as crude trades for less than $50 a barrel, down 55% since last June. But signs of strain are building in the oil patch, where revenue growth hasn’t kept pace. 

• Mercedes-Benz Moving U.S. Headquarters to Atlanta. Daimler’s U.S. Luxury Car Offices Have Been Based in New Jersey Since 1972.

• A City of Mourning and Demonized Police. Shunned by cops, allied with Al Sharpton, incensed by criticism: New York’s mayor begins his second year.

MarketWatch.com:

• Micron Tech(MU) shares fall after revenue miss. 

Zero Hedge:

• Worst Start To A Year Ever, Stocks Down 5 Days In A Row.

• Europe's Monetary Madness. (graph)

• The Last Bubble. (graph)

• ISIS Now Hiring Bankers: In Bid For Legitimacy, Rogue State Opens Bank.

• Analyzing The Secular Bull Market Thesis. (graph)

• Spot The Ridiculous Outlier. (graph)

• How Do You Say "Death Cross" In French? (graph)

Business Insider:

• A Sharp Recession Is Coming To The Global Oilfield.

Telegraph:

• Russia faces 'perfect storm' as reserves vanish and derivatives flash default warnings. BNP Paribas says Russia no longer has enough reserves to cover external debt and enters this crisis 'twice as levered' as it was before the Lehman crash.

Bild:

• German Govt Preparing for Possible Greek Euro Exit. Chancellery sees risk of bank collapse in the event of possible election of leftwing alliance Syriza, citing government officials. If alliance wins and cancels reform program, final installment of EU10b in aid won't be transferred to Athens. Concern that if Greece leaves the euro, there may be a customer deposit run to secure euros that could lead to a banking collapse and possibly oblige the European banking union to spend billions.

National:

• Oil Oversupply Could Take Years to Fix, Mazrouei Says. Oversuppy in crude markets "needs time to be absorbed," U.A.E. Energy Minister Suhail Al Mazrouei says. Oil prices could see correction this year, depending on production growth from non-OPEC members; oversupply could take "months or years" to be absorbed depending on reaction from non-OPEC producers. UAE not changing oil industry development plans due to crude price fluctuations; plans to boost country's output to 3.5m b/d under way, won't be changed.

Evening Recommendations 
Cowen:

• Rated (JWN) Outperform, target $91.

• Rated (SIG) Outperform, target $150.

Night Trading

• Asian equity indices are -.25% to +.50% on average.

• Asia Ex-Japan Investment Grade CDS Index 123.50 +8.5 basis points.

• Asia Pacific Sovereign CDS Index 74.25 +3.75 basis points.

• S&P 500 futures +.29%.

• NASDAQ 100 futures  +.26%.

Morning Preview Links

Earnings of Note
Company/Estimate

• None of note

Economic Releases
8:15 am EST

• The ADP Employment Change for December is estimated at 225K versus 208K in November.

8:30 am EST

• The Trade Deficit  for November is estimated at -$42.0B versus -$43.4B in October.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +911,110 barrels versus a -1,754,000 barrel decline the prior week. Gasoline supplies are estimated to rise by +3,666,670 barrels versus a +2,951,000 gain the prior week. Distillate inventories are estimated to rise by +1,972,220 barrels versus a +1,874,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to fall -.04% versus a +.9% gain the prior week.

2:00 pm EST

• Fed Minutes from 12/17 meeting.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Evans speaking, Eurozone CPI, China Trade Balance, weekly MBA mortgage applications report, Goldman Sachs Energy Conference, (LLY) guidance call and the (ROVI) analyst day could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by consumer and industrial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 25% net long heading into the day.

Stocks Falling into Afternoon on Surging European/Emerging Market/US High-Yield Debt Angst, Global Growth Fears, Yen Strength, Transport/Financial Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Almost Every Sector Declining
  

• Volume: Below Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 22.52 +13.4%

• Euro/Yen Carry Return Index 147.59 -1.03%

• Emerging Markets Currency Volatility(VXY) 10.71 -.46%

• S&P 500 Implied Correlation 71.07 +4.78%

• ISE Sentiment Index 66.0 -2.94%

• Total Put/Call 1.21 +2.54%

• NYSE Arms 1.14 -47.44% 

Credit Investor Angst:

• North American Investment Grade CDS Index 71.05 +2.45%
• America Energy Sector High-Yield CDS Index 700.0 +4.99%

• European Financial Sector CDS Index 71.48 +3.65%

• Western Europe Sovereign Debt CDS Index 28.45 +5.0%
• Asia Pacific Sovereign Debt CDS Index 74.66 +5.89%

• Emerging Market CDS Index 385.67 +1.92%

• China Blended Corporate Spread Index 359.04 +3.88%
• 2-Year Swap Spread 23.0 +.25 basis point

• TED Spread 23.50 unch.

• 3-Month EUR/USD Cross-Currency Basis Swap -14.75 +1.0 basis point

Economic Gauges:

• 3-Month T-Bill Yield .02% +1.0 basis point

• Yield Curve 132.0 -5.0 basis points

• China Import Iron Ore Spot $71.49/Metric Tonne +.87%

• Citi US Economic Surprise Index 22.80 -4.8 points
• Citi Eurozone Economic Surprise Index 10.90 -1.5 points

• Citi Emerging Markets Economic Surprise Index -13.90 +.4 point

• 10-Year TIPS Spread 1.58 -7.0 basis points

Overseas Futures:

• Nikkei Futures: Indicating -243 open in Japan

• DAX Futures: Indicating -21 open in Germany

Portfolio: 

• Slightly Higher: On gains in my index hedges and emerging markets shorts 

• Disclosed Trades: None

• Market Exposure: 25% Net Long

Bear Radar

Style Underperformer:

• Small-Cap Growth -1.72%

Sector Underperformers:

• 1) Gaming -3.01% 2) Road & Rail -2.63% 3) Alt Energy -2.47%

Stocks Falling on Unusual Volume:

• IDTI, ZION, WATT, KORS, KITE, QGEN, CEMP, SSL, WBAI, AAVL, PVH, URI, CLDN, GPC, IOC, PLOW, GEVA, HEES, DEO, WTW, CNSL, VRNS, OCN, IMKTA, IPHI, SE, PLOW, NSC, MDCO, RDUS, CSX, CMC, HTH, ARCB, PVH, NDLS, HLX, CYBX, ISIS, VNCE, NBIX, GEVA and ICPT

Stocks With Unusual Put Option Activity:

• 1) EA 2) CBS 3) CREE 4) CSX 5) AKS
  

Stocks With Most Negative News Mentions:

• 1) KORS 2) CSX 3) FFIV 4) URI 5) CAT
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume